Cryptocurrency and its effect on the Financial Industry

In my previous blog post I discussed the recovery from the 2008 Financial Crisis and the potential effect of the current COVID 19 pandemic on the world economy, in this blog post I will discuss the emergence of cryptocurrency and discuss whether I believe it will have an effect on the financial industry. 


Cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend (Frankenfield, 2021). Types of cryptocurrency include Bitcoin, Litecoin and Eretheum however Bitcoin is the most popular and well-known type of cryptocurrency. Satoshi Nakamuto first established Cryptocurrency in 2008 with the development of Bitcoin, however it wasn’t until 2017 that its value absolutely sky rocketed. The rise of cryptocurrency peaked this year when Bitcoin hit an all time high in value, but it is important to look into whether this could affect the financial industry. 


One of the main problems with cryptocurrency taking over is that in a potential financial crisis it could affect the prospects of recovery, Bentley (cited by English, 2020) states that “If the world’s major currencies are decentralised, central banks will arguably be helpless in the event of a future financial crisis”. As well as this Bradbury (2020) notes that a currency’s value is based upon trust in the currency and that if people lose trust in a currency they seek an alternative, Bitcoin is seen as a possible alternative. This could affect the financial industry as banks and governments have no control over Bitcoin or its value, this could be a recipe for disaster as Bitcoin is very open to potential fraud and its value is extremely volatile. Following on from this, theorist Hilman (cited by Hodgson, 2017) believes that “cryptocurrencies threaten stability and could also exacerbate the next crisis, this statement along with the theorists discussed above show that several financial industry figureheads believe the growing rise of cryptocurrency has the potential to affect the financial industry in very negative way. 


I have discussed how the emergence and on-going rise of cryptocurrency could negatively affect the financial industry but it is also important to discuss the positives it may have. Financial institutions such a banks have the ability with Bitcoin to process payments, facilitate international cash transactions, and on top of this they may seek to provide loans in Bitcoin. In reality the list of possibilities with the currency is endless and it seems as if it is only going to get stronger in value, Cryptocurrency may well indeed be the future of the financial industry. This concludes my 4 part blog posts on the 2008 Financial Crisis and its effect on the financial industry around the world, I hope you have enjoyed reading the posts as much as I have writing them, any feedback you may have for me is always welcomed, goodbye for now. 


Adam





References


Bradbury, D., 2020. Will Bitcoin Save You If a Financial Storm Hits?. The Balance. Available at: https://www.thebalance.com/is-bitcoin-the-answer-in-a-financial-crisis-391275 [Accessed 22 March 2021].


English, S., 2020. What happens in a financial crash if bitcoin rules? Disaster…. Standard.co.uk. Available at: https://www.standard.co.uk/business/crypto/bitcoin-crash-economy-b81132.html [Accessed 22 March 2021].


Frankenfield, J., 2021. Cryptocurrency. Investopedia. Available at: https://www.investopedia.com/terms/c/cryptocurrency.asp [Accessed 20 March 2021].


Hodgson, C., 2017. Bitcoin could trigger the next financial crisis. Business Insider. Available at: https://www.businessinsider.com/bitcoin-could-trigger-financial-crisis-2017-12?r=US&IR=T  [Accessed 22 March 2021].


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